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TMI Blog2024 (7) TMI 1137X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had used the platform of circular trading to draw higher finance from the bank. There is no instance of any diversion of funds as pointed out by the AO. The funds from the discounted letter of credits are used for the purpose of business and is allowable under section 36(1)(iii) of the Act. There is no ground to interfere with the conclusions of CIT(A). Hence, the ground raised by the Revenue is dismissed. Assessment u/s 153A - Addition u/s 68 - In this case, the addition is not based on any incriminating evidences as evident from the assessment order. All the transactions were reflected in regular books of account. No incriminating evidences were unearthed. Neither there is any statement u/s 132(4) nor any corroborative evidences which goes against the assessee. Accordingly, no addition is sustainable in the absence of any incriminating document. DR pleaded that addition of ₹ 4 crore may be confirmed as transactions were not genuine. He, however, failed to pinpoint any incriminating evidence upon which the additions were made. Thus, all the grounds raised by the Revenue are dismissed. - Shri V. Durga Rao, Judicial Member And Shri K.M. Roy, Accountant, Member For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or companies with documentary support of the source of share premium and capital. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the companies from whom the share capital along with share premium was received did not have the credit worthiness nor the genuineness of the transaction is proved. 7. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the ground realities that the documents in the case of shell companies are always in order so that they can act as a conduit in aiding tax evasion. 8. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that the primary onus of establishing the Identity, Creditworthiness and Genuineness of transactions has not been discharged by the assessee, as companies which have provided the share capital along with share premium have been found to be shell companies. 9. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s 68 of the Act, on the ground that share application money had been returned in the next year, without appreciating the fact that mere return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has duly applied his mind and has disallowed the expenditure to the extent of paper transaction not backed by actual business. In fact, in the assessment order, the Assessing Officer has specifically noted by way of an office note which reads as follows: Office Note:- 1) The disallowance of financial expenses in proportion to the interest expenses on account of cash credit/L.C. and addition on account of loss incurred due to the corresponding sale and purchase transactions are the only items which have direct nexus with the circular transactions carried out by the assessee. The other items of expenses debited in the profit loss account were not found to have any nexus with such circular trading/transaction and hence no disallowance regarding any part of the other items of the expenses debited in the profit and loss account has been made. 5. The learned CIT(A) had disallowed the loss on circular transaction holding it to be artificial and managed and losses are fabricated, but on the other hand, he found that the financial charges to be incurred for the purpose of business, hence, to be allowed. The assessee has pleaded that the funds were required for working capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unabated assessment year since no proceeding were pending on the date of search. Accordingly, it is essential to understand the scope of addition under section 153A of the Act in respect of unabated assessment years in line with the binding judgments of the Hon ble Apex Court. (a) Respondent can assume jurisdiction to assess or re-assess income under section 153A/153C of the Act in cases where assessment proceedings have not abated, if and only if any incriminating material relating to petitioner has been found during the course of proceedings under section 132 of the Act in the case of the person in whose case proceedings under section 132 of the Act have been taken. In Abhisar Buildwell Pvt. Ltd. 454 ITR 212, the Apex Court held that where no incriminating material is found/unearthed during the search, the assessing officer cannot assess or re-assess taking into consideration the other materials in respect of unabated/completed assessments. Paragraphs 5 to 7.1, 8 and 11 to 14 in Abhisar Buildwell Pvt. Ltd. (Supra) read as under: 5. That the question which is posed for consideration in the present set of appeals is, as to whether in respect of completed assessments / unabated ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly issued to the person searched requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such Ays will have to be computed by the assessing officers as a fresh exercise. (iii) The assessing officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The assessing officer has the power to assess and reassess the total income of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the assessing officer which can be related to the evidence found, it does not mean that the assessment can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the assessing officer would assume the jurisdiction to assess or reassess the total income for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under section 132 or requisition under section 132A and during the search any incriminating material is found, even in case of unabated / completed assessment, the assessing officer would have the jurisdiction to assess or reassess the total income taking int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions, which is not permissible under the law. 13. For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material. 14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under section 132 or requisition under section 132A, the assessing officer assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the assessing officer would assume the jurisdiction to assess or reassess the total income taking into consideration the incriminating material unearthed during the search and the other material available with the assessing officer including the income declared in the returns; and iv) in case no incriminating material is unearthed dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued under section 153A, the assessee filed return of income declaring nil income, as against which assessment under section 153A/143(3) was made by making an addition of Rs. 7 crores under section 68 towards unverifiable expenses. The Commissioner (Appeals) as well as the Tribunal relying upon judgment in CIT v. Kabul Chawla [2015] 61 taxmann.com 412/234 Taxman 300/[2016] 380 ITR 573 (Delhi) deleted addition made by the Assessing Officer on the ground that no incriminatory material was found during search operations pertaining to this particular assessment year, hence, the Assessing Officer could not have proceeded to frame assessment under section 153A. Held that since additions were not based on seized material, instant case was admittedly covered by the decision of Kabul Chawla case (supra) and, therefore, no substantial question of law arose for the consideration. iii) Principal CIT v. Saroj Sudhir Kothari [2023] 154 taxmann.com 127 (Bom.) The assessment of the assessee was completed. Thereafter, a search was conducted at the premises of the assessee resulting in addition by the As- sessing Officer. The Tribunal deleted the said addition by holding that no incriminating materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that since no incriminating evidence was found during search conducted upon the assessee, impugned assessment order passed under section 153A making additions under section 68 and such section 69C was without jurisdiction and the same was to be set aside. vii) Principal CIT v. Saroj Sudhir Kothari [2023] 154 taxmann.com 359 (Bom.) Where pursuant to the issue of notice under section 153A assessments are abated, Assessing Officer retains original jurisdiction as well as jurisdiction conferred on him under section 153A for which assessments shall be made for each of six assessment years separately. Thus, no addition can be made in respect of the unabated assessments which have become final if no incriminating material is found during the search. Case review: SLP dismissed in Principal CIT v. Saroj Sudhir Kothari [2023] 154 taxmann.com 360/294 Taxman 598 (SC). viii) Underwater Services Company Ltd. v. Asstt. CIT [2023] 146 taxmann. com 541/[2022] 448 ITR 691 (Bom.) The notice issued under section 153A should mention whether seized ma- terial was under section 132 or books of account, other documents or any assets are requisitioned under section 132A. Where pursuant to search a noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the search action and initiating proceeding under section 153A. Hence, the said assessment was unabated/concluded assessment on the date of search and deserved to be undisturbed in the absence of any incriminating material found in the course of search and accordingly the disallowance made under section 40(a)(ia) required to be deleted. Held that the assessee had not kept its income undisclosed for the assessment year 2011-12. The statements of the subcontractors belonging to the Naga tribe were recorded and their statements have not been contradicted or controverted by the Assessing Officer. It was also not controverted that since the work was done by the Naga subcontractors, there was no requirement of deduction of tax at source, as their income is exempted under section 10(26). The subcontractors, through their statements both oral and written, have affirmed that the work was done by them for the assessee through with the understanding to pay 2 per cent commission from the payment of the assessee. Through concurrent decisions by the Commissioner (Appeals) as well as by the Tribunal it was held that no incriminating material was found in the course of search. The Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no incriminating documents or materials had been found and seized at the time of search, no addition could be made under section 153A as cases of the assessee were of non-abated assessments. On appeal before the Supreme Court, both sides submitted that issue involved in this appeal was squarely covered by the decision of the Supreme Court in Pr. CIT v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399/293 Taxman 141/454 ITR 212 and in the light of dictum laid down thereunder and in view of indisputable fact that during search no incriminating material was found, this appeal must fail. However, in view of the decision in Abhisar Buildcon (P.) Ltd.'s case (supra), completed/unabated assessments could be re-opened by the Assessing Officer in exercise of powers under section 147/148, subject to the fulfilment of conditions envisaged under section 147/148 and hence, such powers are saved in terms of the said judgment. Case review: Pr. CIT v., LKG Builders (P.) Ltd. [2023] 154 taxmann.com 188 (Delhi) (para 5) affirmed. 9. The learned Departmental Representative only pleaded that addition of ₹ 4 crore may be confirmed as transactions were not genuine. He, however, fail ..... X X X X Extracts X X X X X X X X Extracts X X X X
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